Companies that burn cash at a rapid pace can run into serious trouble if they fail to secure funding. Without a clear path to profitability, these businesses risk dilution, mounting debt, or even bankruptcy.
Just because a company is spending heavily doesn’t mean it’s on the right track, and StockStory is here to separate the winners from the losers. Keeping that in mind, here is one high-risk, high-reward company investing aggressively to carve out a leadership position and two that could run into serious trouble.
Two Stocks to Sell:
Hertz (HTZ)
Trailing 12-Month Free Cash Flow Margin: -4.7%
Started with a dozen Model T Fords, Hertz (NASDAQ: HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Why Should You Dump HTZ?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.7% annually over the last two years
- Diminishing returns on capital suggest its earlier profit pools are drying up
Hertz is trading at $7.44 per share, or 132.2x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including HTZ in your portfolio.
Clover Health (CLOV)
Trailing 12-Month Free Cash Flow Margin: -3.6%
Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ: CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.
Why Are We Wary of CLOV?
- Modest revenue base of $1.92 billion means it has less operating leverage but can also grow faster if it executes the right sales strategy
- Negative free cash flow raises questions about the return timeline for its investments
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Clover Health’s stock price of $2.22 implies a valuation ratio of 27x forward P/E. To fully understand why you should be careful with CLOV, check out our full research report (it’s free).
One Stock to Watch:
Upstart (UPST)
Trailing 12-Month Free Cash Flow Margin: -18.9%
Using over 2,500 data variables and trained on nearly 82 million repayment events, Upstart (NASDAQ: UPST) is an AI-powered lending platform that uses machine learning to help banks and credit unions more accurately assess borrower risk for personal loans, auto loans, and home equity lines of credit.
Why Do We Like UPST?
- Loan originations on its platform are soaring as they averaged 51.6% growth over the last year, enabling the company to collect more fees and expand into new markets like credit cards.
- Market share will likely rise over the next 12 months as its expected revenue growth of 36% is robust
- Operating margin improvement of 31.2 percentage points over the last year demonstrates its ability to scale efficiently
At $34.79 per share, Upstart trades at 2.6x forward price-to-sales. Is now the right time to buy? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it's flagging for this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
